Towns and cities eye outsourcing services in tough times

Recession-battered towns and cities can save money by outsourcing some public services, but municipal leaders should do so with caution, according to a new report.

David Riley

(Editor's note: Embargoed until week starting July 24.)

Recession-battered towns and cities can save money by outsourcing some public services, but municipal leaders should do so with caution, according to a new report.

The Pioneer Institute, a conservative think tank, surveyed 22 Bay State communities that contract with businesses, regional governments or nonprofits to handle services ranging from street sweeping to legal services. Some saw significant savings, with one city cutting its costs for grounds maintenance and lawn mowing by 75 percent, the report said.

But the publication warns that some services are inappropriate to outsource, and the practice carries political risks. For outsourcing to work well, towns and cities must write carefully-worded contracts and enforce them rigorously, the Pioneer Institute said.

Pioneer intended the report as a practical guide for municipal officials who are interested in outsourcing, but unsure where to start, said Josh Archambault, program manager for the research group’s Middle Cities Initiative.

“There’s an appetite for it, given the economy,” he said.

Many towns and cities already outsource or share certain services, but tight fiscal times are prompting some to take a closer look at their options, said Geoff Beckwith, executive director of the Massachusetts Municipal Association.

“I think the report provides a good overview of the issues at play and opportunities, but recognizing that the opportunities will differ from community to community,” he said.

Organized labor often sees privatizing public services as an unwise gamble.

A representative for public employee unions said privatizing may not yield savings in the long term and can take money out of regional economies by reducing pay to local workers and sending it to businesses based elsewhere.

“We think the cost savings are often exaggerated,” said Jim Durkin, a spokesman for the American Federation of State, County and Municipal Employees Council 93. “In many cases, any cost savings that do materialize in the first year or so of the contract often evaporate after the city loses the infrastructure to bring the service back in-house.”

Pioneer advocates “free market principles, individual liberty and responsibility, and the ideal of effective, limited and accountable government,” its mission statement says. The report by Senior Fellow Stephen Lisauskas is titled, “A Practitioner’s Guide to Outsourcing: An Opportunity to Improve Cost and Service Quality?”

The report is a publication of Pioneer’s Middle Cities Initiative, in which 14 of Massachusetts' older industrial cities share best practices.

An outside contractor can sometimes find new and more flexible ways to meet municipal needs, the report said.

Outsourcing can save money by eliminating unnecessary staff, tapping lower private wages and benefits, and drawing on the equipment and expertise of vendors who specialize in certain services, the report said.

The practice can free up town and city managers to monitor and measure the quality of services, rather than on day-to-day responsibilities like supervising employees, the Pioneer Institute argued.

Contracts can include financial penalties if a service provider fails to meet expectations, and can also shift liabilities to vendors, the report said. For example, if a town contracts a private business to prune trees, the company instead of the municipality could be liable if a stray limb fell on a car.

But the report acknowledged some significant challenges in outsourcing. It works best with services that have clear, measurable results – trash pickup, for example, versus police protection, the report said.

The Pioneer Institute also warned towns and cities to consider instances where local staff can be more flexible than a contractor. A town laborer, for example, might be able to rebuild storm drains one day and sewers another, which may not be possble with a specialized vendor.

Josh Ostroff, a Natick selectman and president of the Mass. Municipal Association, cited a similar example. His town provides municipal trash pickup, but those employees handle other duties such as snow plowing, and they already know the streets well, he said.

“This is an example where you need to think about your services carefully,” Ostroff said.

The report also warns that becoming too reliant on outside contractors can make a municipality vulnerable to cost increases in some cases.

Lastly, the report warns that outsourcing can be politically risky for municipal leaders, who might face opposition from residents and employees.

Opportunities vary greatly depending on the town, Archambault said. For example, a smaller town might be more likely to save money by outsourcing human resource duties than a large city that manages a large workforce.

“If there are small communities around a larger city, then there really are certain opportunities for economies of scale,” Archambault said.

Many towns and cities already have private contracts for everything from trash pickup to ambulance runs to engineering services, Beckwith said. But some communities are now exploring newer areas, such as janitorial work in schools, he said.

Communities are also looking closely at regionalizing – sharing equipment and services to reduce personnel costs and overhead, Beckwith said.

“It’s not a distant cousin, but really a sibling of outsourcing,” he said.

Durkin said there are cases where public entities have outsourced a service to a private business – sometimes over objections from residents – only to later bring it back in-house when costs escalated. In other instances, he said towns or cities seemed to lack followup to see if savings came through in the long term.

Privatizing also can hurt employees, Durkin said. For example, Chelmsford schools recently outsourced custodial services to a private contractor that offered to hire district staff members, but with steep wage cuts, he said.

“We have a fundamental disagreement with the philosophy of privatization,” Durkin said.

Ostroff said his town always considers outsourcing or regionalizing where appropriate, but he described a plethora of factors that municipal leaders have to consider. They range from the upfront and ongoing costs to the potential difficulty of switching vendors if the town is dissatisfied.

Natick last year considered whether to outsource ambulance services, ultimately deciding to continue doing the job itself, based on concerns about cost and quality.

“Other communities have different needs and have decided to outsource it, but it’s worked well for Natick,” Ostroff said. “We also realized over a half million dollars a year in ambulance revenue that would be lost if we did not have that service in house.”

(David Riley can be reached at 508-626-3919 or driley@wickedlocal.com.)

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